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Importance of Financial Rewards in an Organization

Discuss about the Financial Rewards and Employment Relationship.

In this overly competitive world, a company strives to achieve the maximum amount of profit and productivity in order to stay ahead of the game. Therefore, it has to find out ways to meet the requirement. For this essay, Financial Rewards and the Employment Relationship has been chosen as the topic as it the most relevant in the world today. The workforce or the employees of the company are one of the most pivotal resources. A workforce that is motivated can be a major contributor to the profit margin of a company. When employees are motivated and encouraged to achieve high productivity level, the organization itself runs smoothly. Whereas, an unmotivated workforce means that the organization cannot function efficiently. A motivated workforce is the lifeblood of an organization. It is for precisely this reason that the management of a company must understand the need of financial reward. Incentives or financial reward is one of the most important and effective ways to motivate the employees of a company by the management to perform better. An incentive is a promise that motivates and encourages someone to do something. It simulates an employee to perform better and try harder to give better output or result. The outline of the essay traces the effectiveness of financial rewards in a business. It also discusses the need for financial rewards in an organization. It talks about the motivational theory of Abraham Maslow to effectively highlight the need for financial rewards in the workforce of a company. This write-up discusses the impact of financial rewards on the employees of a company. It also traces its positive and negative aspects.

In a career of an individual, job satisfaction plays an integral part. Job satisfaction comes when the employees are satisfied in their jobs. This comes when they are handsomely rewarded for the efforts that they put in. The workforce of a company can be rewarded by two significant means. One is appreciation for the work they do by the management and the other is financial rewards for the efforts that they put in. Appreciation falls into the larger category of non-monetary incentives. Amongst the non-monetary incentives, the most important are job security, recognition or praise, promotion opportunities and job enrichment (Kunz and Linder 2012). Motivation plays a significant role in the job satisfaction of an employee. Companies, in order to maintain good quality of talents, strive to keep their employees happy and satisfied. One of the most significant means is giving financial rewards to motivate the employees. Companies, in order to motivate the employees, must keep certain points in mind. They are: an analysis of what motivates the employees of the organization, performance objective of the employee, goals of the company and culture and values of the company (Lepper and Greene 2015).

Types of Financial Incentives

An incentive is a stimulus that helps to achieve greater action and productivity from the workforce. It is a remuneration or benefit to an employee in recognition or appreciation of better work and effort. A hope for a better reward or recognition helps the employees to work better and strive to get better and increased productivity. In an organization, incentives are needed to enhance the commitment of the employees in work performance, increase the productivity of the workforce, and imbibe enthusiasm of the employees in the work culture. It is also needed to get the maximum output from the employees of a company, to psychologically please the employees, which further leads to job satisfaction.

According to Grandey, Chi and Diamond 2013, an employee of a company receives financial payment from the employers in the form of salary. The payment is given in return of the work that they do for the company. In addition to the regular financial compensation, an employee expects to be rewarded for the additional effort that he or she puts in for the company. Financial rewards are the incentives that the employees earn as a result of a good performance in his area of wok or expertise (Grandey, Chi and Diamond 2013). When an employee helps an organization to achieve its sets of goals within a stipulated period of time, a reward is often offered as a gesture of thanks and as a gesture of appreciation. Financial rewards or incentives are important as it motivates the employees to perform better at their jobs.


The financial incentives that a company gives to its employees include allowances and pay, incentive pay, retirement benefits, profit sharing, stock options, and gain sharing. Allowances and pay include dearness allowance, basic pay, travelling allowance, pay increments and grade pay.  Good salary structure helps the organization attract and retain employees. However, good allowances and pay structure does not necessarily motivate and stimulate all employees. Those employees who enjoy job security in a government organization do not always look for financial incentive as a motivation. A company, in order to motivate the employees to increase their productivity and output that can be measured quantitatively, gives an incentive pay to its employees (Richter, Raban and Rafaeli 2015). In order to meet the target and the requirement, the employees of the company must have confidence in themselves that they are capable to achieve the desired target. Retirement benefits help the employee achieve a sense of security and calmness. Retirement benefits include pension, gratuity, accumulated provident fund, and leave encashment. The assurance of retirement benefit helps the employees to perform better without worrying about the security of future. When a company shares the profit that it gains with the employees of the company, it is known as profit sharing. It happens with the distribution of bonuses. Profit sharing has its negative impact also. Wherever it is a regular feature, irrespective of the output and the performance, in those cases, there it has no connection with performance or efforts. Many companies make use of stock options plan to attract, retain and compensate employees. It is a contract between the company and the employee that gives the right to the employee to purchase a specific amount of shares of the company within a particular time. Employees who are granted stock options hope to achieve maximum profit by selling the stocks when the prices are higher than when it was bought. Gain sharing is a reward system in which employees are rewarded for reducing wastages and increasing productivity (Malik, Butt and Choi 2015). 

Motivation and the Need Hierarchy Theory of Abraham Maslow

Every public and private organizations face trouble to explicate the strategy of motivation that can be applied to their employees to improve performance. Individual employees are very different from one another regarding their needs, religion and cultural perspectives.  Therefore, the strategy to motivate employees varies accordingly. Based on several economic studies, it can be said that monetary incentives play a key role in motivating an individual to achieve organizational objectives (Pinder 2014).

Motivation is the drive or stimulation that enables an individual to perform efficiently in their respective domain. Human being gets motivated according to the fulfillment of their primary and secondary needs. Their primary need comprises the fundamental physiological needs like food and shelter and secondary needs comprises the emotional needs, self-esteem and self-actualization. Individual needs that can be considered during motivation are clearly depicted by the need hierarchy theory of Abraham Maslow (Reeve 2014).

According to Abraham Maslow human needs follows a hierarchical path, which can be expressed through a structure of pyramid. The bottom of the pyramid comprises the basic physiological need of an individual, which is required for survival whereas the top of the pyramid depicts the self-esteem of an individual. According to this theory, individuals only get motivated when their basic levels of needs are fulfilled. Therefore, monetary system can be used to motivate individuals as only money can help them to meet their physiological need like food and shelter (Kremer and Hammond 2014). Salary meets the fundamental need of the employee. Unquestionably, it is true that employees occupy their own seat in the office everyday because they receive salary. A majority of employee found to believe that pay scale is the primary factor for engagement in an organization (Mahon, Taylor and Boyatzis 2015). Studies suggested that money remain as the most significant strategy of motivation. It has also been demonstrated that industrial workers shows better productivity and motivation towards their work when they get extra monetary benefit from it. Studies have been demonstrated that when adequate incentives are paid to the workers they perform well, enjoy increased job satisfaction and get motivated to achieve organizational objectives. Studies have been explained that low compensation and inadequate pay scale not only hampers employee’s motivation but also create vengeful employees (Taylor and Beh 2013). When an employee feels that he is inadequately paid he shifts his focus toward the unfairness of the situation, which in turn demotivates them in many ways (Olusegun 2013). Sometime same designation holder of an organization is paid differently due to their performance. Inequality in payment is often misinterpreted by the employees, which leads to demotivation (Card et al. 2012).

Positive and Negative Impacts of Financial Rewards on Employee Performance


Deci and Ryan 2012 says that, money has distinct motivational power as it provides the realization of security, prestige, power, accomplishment and achievement. Studies also showed that money could motivate an individual to switch their jobs as it has the power to attract, motivate and retain employees to achieve high performance (Deci and Ryan 2012). When an employee working in a specific organization with particular work frame gets an offer, which has similar work frame but higher financial aids, there is a probability for that employee to be motivated to switch their job to avail the financial benefit (Osa 2014).

Financial incentives, retirement compensations, provident fund, gratuity and other post-job monetary wages also motivate employees to maintain organizational commitment. Organizational commitment is directly related with the performance and motivation of the employee. Having assurance of post-service compensation, employees get motivated  to maintain the relationship with the organization and serve their best to avail extra compensations which might be useful in their old age in the future (Olubusayo, Stephen and Maxwell 2014).

Moreover, an organization incorporates reward system in terms of money and appraisal to encourage their performance and motivate them to maintain effective relationship with the organization. Employees get motivated when their effort has been recognized and they get extra monetary benefit for their performance. When the effort of an employee is visible to the higher administrative authorities, it increases the sense of belonging of the employee, which influences their organizational commitment and subsequently raises their job satisfaction. Higher job satisfaction among employees effectively motivates them to retain their good will within the organization (Hsu et al. 2015).

Monetary incentives help to increase and maintain the higher level of productivity. As is evident, the system of financial rewarding system to stimulate the employees has many advantages. The advantages of financial rewards and incentives to motivate the employees are many. The effectiveness of monetary incentive to attract employees is high. In this expensive world of today, everything is extremely costly. In order to maintain a decent standard of living, and meet the daily basic requirement of life, an employee of a company always looks forward to get monetary compensation and benefit from the company where he works. Monetary incentive is the most effective form of reward to motivate the employees. According to Hofmans, De Gieter and Pepermans 2013, when a company uses financial rewarding system, it has a lot of option of how to use it. Bonuses, gift certificates and cash rewards are few of the ways in which a company uses financial rewarding system to encourage the employees to perform better. Financial rewards appeal to all grades of employees in a company (Hofmans, De Gieter and Pepermans 2013). It can encourage all employees from the lowest grade to the chairperson or the CEO. The lesser an employee makes, the greater the motivation financial rewards provide. Financial incentive helps the company to achieve short-term goals as it helps to motivate the employees to increase their productivity during a short period of time. It can alter and change the attitude of an employee towards work and office for the better. It is the best means to extract desired result from the employees of a company when there is no arrangement for a promotion or a raise. It is also useful during the recruitment process, as candidates will get attracted to a job that has a lucrative incentive scheme.

Despite all the advantages listed in the paragraphs above, using financial rewards to motivate the employees of a company also have quite a few disadvantages. Using financial rewards for everything might give a rise of sense of entitlement within the employees of a company. The staffs might consider the financial incentives as their rightful gain when it becomes a regular feature in any company. If an employer is not clear regarding what aspects of the job he wants the employees to focus on for incentives, then there might be serious repercussions for the same. The financial rewarding when is targeted to a group can create discord and strife in the group. This may rise due to unequal division of task within the group. The incentive system can also lead to a quarrel and hostility amongst the employees. If the rewarding system is based on competition amongst the employees, then it might lead to a fight and anger amongst the employees. It can lead to a situation where employees purposely try to exceed their colleagues. Monetary incentives might prove to be less effective than the non-monetary incentives (Glasziou 2012).


One of the main drawbacks of this form of rewarding system is the inconsistency. The amount of incentive received by an employee might be lesser than any other employee or lesser than any employee of different sector or different company. Therefore, the incentive structure might vary from hierarchy to companies. A small company might not be able to pay as much as any big company. Financial rewarding system might slow down teamwork. It can create a divide within the team (Dobre 2013). In this set up of teams, financial incentives might give reasons to employees to accumulate work rather than pass down work and divide it equally amongst the co-workers. Bonuses or financial incentives can lead to burn out in the employees. It might force the employees to work harder. However, this might lead to an exhaustion and burn out in the employees. According to Jacobsen, Hvitved and Andersen 2014, performance-based incentive might have a negative effect on the employees. If for some reason the employee misses out on the incentive by only a little bit, then it might have a huge negative impact on the psyche of the employee (Jacobsen, Hvitved and Andersen 2014).

Motivation in the workforce is the most pivotal requirements of any company in this competitive day and age. Without adequate motivation, an employee will fail to perform to the best of their abilities, which might result in the company incurring huge losses and will lag behind in the competitive race. Companies should have a thorough plan before executing the incentive plan. The incentive plan should be just and fair. It should be set up in way that should not dispirit teamwork. The plan should be monitored in a way that it should ensure that there is no cheating. The company should set goals that can be measured objectively. While the inclusion of a financial incentive structure is important, it should not dictate the work culture in an organization. Financial rewards and employee satisfaction go hand in hand in an organization. However, it is not the only thing that can motivate the employees of a company. Many factors like job security, recognition, promotion and job enrichment also influence the interest of an employee in the work that he does. Therefore, financial rewards on one hand can be a great motivator of the workforce within a company; however, it also has many drawbacks. Companies have to find out ways to strike a balance between the two to achieve higher levels of productivity and profit.

References:

Card, D., Mas, A., Moretti, E. and Saez, E., 2012. Inequality at work: The effect of peer salaries on job satisfaction. The American Economic Review, 102(6), pp.2981-3003.

Deci, E.L. and Ryan, R.M., 2012. Motivation, personality, and development within embedded social contexts: An overview of self-determination theory. The Oxford handbook of human motivation, pp.85-107.

Dobre, O.I., 2013. Employee motivation and organizational performance. Journal of Management and Socio-Economic, (1).

Glasziou, P., Buchan, H., Mar, C.D., Doust, J., Harris, M., Knight, R., Scott, A., Scott, I.A. and Stockwell, A., 2012. When financial incentives do more good than harm: a checklist. Bmj, 5047, pp.345-350.  

Grandey, A.A., Chi, N.W. and Diamond, J.A., 2013. Show me the money! Do financial rewards for performance enhance or undermine the satisfaction from emotional labor?. Personnel Psychology, 66(3), pp.569-612.

Hofmans, J., De Gieter, S. and Pepermans, R., 2013. Individual differences in the relationship between satisfaction with job rewards and job satisfaction. Journal of vocational behavior, 82(1), pp.1-9.

Hsu, C.P., Chiang, C.Y., Chang, C.W., Huang, H.C. and Chen, C.C., 2015. Enhancing the commitment of nurses to the organisation by means of trust and monetary reward. Journal of nursing management, 23(5), pp.567-576.

Jacobsen, C.B., Hvitved, J. and Andersen, L.B., 2014. Command and motivation: How the perception of external interventions relates to intrinsic motivation and public service motivation. Public Administration, 92(4), pp.790-806.

Kremer, W.K. and Hammond, C., 2013. Abraham Maslow and the pyramid that beguiled business. BBC news magazine.

Kunz, J. and Linder, S., 2012. Organizational control and work effort–another look at the interplay of rewards and motivation. European Accounting Review, 21(3), pp.591-621.

Lepper, M.R. and Greene, D. eds., 2015. The hidden costs of reward: New perspectives on the psychology of human motivation. Psychology Press.

Mahon, E.G., Taylor, S.N. and Boyatzis, R.E., 2015. Antecedents of organizational engagement: exploring vision, mood and perceived organizational support with emotional intelligence as a moderator. The Impact of Shared Vision on Leadership, Engagement, and Organizational Citizenship, p.129.

Malik, M.A.R., Butt, A.N. and Choi, J.N., 2015. Rewards and employee creative performance: Moderating effects of creative self?efficacy, reward importance, and locus of control. Journal of Organizational Behavior, 36(1), pp.59-74. 

Olubusayo, F.H., Stephen, I.A. and Maxwell, O., 2014. Incentives Packages and Employees' Attitudes to Work: A Study Of Selected Government Parastatals In Ogun State, South-West, Nigeria. International Journal of Research in Business and Social Science, 3(1), p.63.

Olusegun, S.O., 2013. Influence of job satisfaction on turnover intentions of library personnel in Selected Univerisities in South West Nigeria.

Osa, I.G., 2014. Monetary Incentives Motivates Employee’s On Organizational Performance. Global Journal of Arts Humanities and Social Sciences, 2(7), pp.61-69.

Pinder, C.C., 2014. Work motivation in organizational behavior. Psychology Press.

Reeve, J., 2014. Understanding motivation and emotion. John Wiley & Sons.

Richter, G., Raban, D.R. and Rafaeli, S., 2015. Studying gamification: the effect of rewards and incentives on motivation. In Gamification in education and business (pp. 21-46). Springer International Publishing.

Taylor, J. and Beh, L., 2013. The impact of pay-for-performance schemes on the performance of Australian and Malaysian government employees. Public Management Review, 15(8), pp.1090-1115

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